Page 166 - F1 Integrated Workbook STUDENT 2018

Chaptter 10

Exxampple 2

Whhich ONE oof the folloowing itemms would we recognise as suubsequentt
exppenditure on a non--current assset and ccapitalise as requireed by IAS 16
Prooperty, Plaant and Eqquipment??

A A furnacce was purrchased fivve years aggo, when thhe furnacee lining wass
separateely identifieed in the acccounting records. TThe furnacee now
requiress re-lining aat a cost off $200,0000. When thee furnace iis re-lined it
will enabble the bussiness to use the furnnace for a ffurther fivee years.

B An officee building wwas badly damaged in a fire. TThe cost to restore thee
building to its original condition will be $250,000.

C A delivery vehicle has broken down annd when insspected it wwas
discoverred a new engine woould be reqquired estimmated at $55,000.

D A factoryy is closedd for two weeeks each year to ennable the eentity to
undertakke routine maintenannce and repairs costing $75,0000.

Sollution

Thee answer iss A becausse by re-linning the furrnace we aare adding somethingg to
the original assset by exttending its useful life.

All other optioons are revvenue expeenses to be charged to the stattement of
pro ofit or loss bbecause thhey are simmply repairrs to the original asseet.

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